Commercial Real Estate Market Outlook
Real Capital Analytics (“RCA”) recorded $105 billion of transactions in the second quarter of 2016, 14% lower than the second quarter of 2015. Year to date, sales have totaled $260B, 19% lower than the first half of 2015, primarily due to fewer portfolio sales. According to CBRE Econometric Advisors (“CBRE-EA”), vacancy rates for all major property sectors showed improvement during the second quarter.
Multifamily – At the end of the second quarter of 2016, the national vacancy rate for multifamily properties was 4.4%, down 30 bp from the prior quarter though 10 bp higher than the vacancy rate of one year ago. New supply in the second half of 2016 is expected to increase overall vacancy and slow the recent pace of rent growth.
Second quarter 2016 sale volume for multifamily properties totaled $32.7 billion, up 5% from the same period last year and the only one of the major property types to show an increase over the prior year. In the second quarter, cap rates for multifamily sales averaged 5.6%, down 10 bp from the prior quarter.
Retail – The national retail vacancy rate fell by 10 bp to 10.9% in the second quarter of 2016. Approximately 70% of the cities covered by CBRE-EA posted reductions in vacancy during the quarter.
The retail sector recorded $17.6 billion in sales in the second quarter 2016, down 10% from the second quarter 2015. Average cap rates for retail properties were 6.4% in the second quarter of 2016, down 20 bps from the prior quarter.
Office – As of June 30, 2016, the national office vacancy level was 13.0%, down 20 bps from the Office property sale volume was $31.9 billion in the second quarter 2016, down 10% from the second quarter of 2015. The drop in sales volume was primarily due to several portfolio sales in second quarter 2015 and fewer suburban office sales in 2016. Average cap rates for office transactions increased 10 bps from the prior quarter, to 6.6%.
Industrial – The national industrial vacancy level fell 20 basis points in the second quarter of 2016, to the pre-recession low of 8.8%, resulting in continued upward pressure on rents and an increase in development activity. The vacancy rate in the industrial sector has either remained the same or decreased every quarter for 25 straight quarters, continuing the longest period of vacancy decline that CBRE-EA has ever recorded.
Sales of industrial property totaled $12.5 billion in the second quarter, down 26% from the same period last year. The drop in sales volume was primarily due to unusually active portfolio sale activity in second quarter 2015. Average cap rates for the industrial sector decreased 40 bps from the prior quarter, to 6.8%.